U.S. Gold: A Study In Junior Mining Leadership

Many years ago as I was learning to trade junior resource stocks, a grizzled
old gold miner -- the owner of a small publicly listed company -- asked me: "Do
you know what a gold mine is?" I suspected he was leading up to the punchline, "A
gold mine is a hole in the ground with a liar looking into it." As a novitiate
in that perilous arena, I never really completely believed in that sarcasm.
Instead, I felt there had to be honest, adventurous visionaries who went out
into the wilderness and stuck to the rules. Researching the leadership of junior
mining companies is crucial when screening for potential winners, and it's
a major component of my research. When an investor finds leaders who have stellar
track records and put their own money where their mouth is, they need to pay
attention to their actions.

The majors were once penny stocks themselves. For example, Barrick Gold (ABX)
traded at $0.17 a share just a few years ago. Goldcorp (GG) developed rapidly
in the past decade. The power of a world-class discovery can lead to major
gains for shareholders. In the junior mining sector there is not a lack of
stocks, however there is a lack of quality leadership that know how to finance
and develop a discovery to make shareholders large returns on invested capital.

As a model for my mining stock selection, which has the quality leadership
that I am looking for, I will use US Gold (UXG). Right off the bat, I was impressed
with the leadership of this small, virtually obscure explorer. My interest
was piqued by Rob McEwen. He had created Goldcorp, which again grew from pennies
to be the major entity it is today. While leading Goldcorp, McEwen averaged
a 31% annual return for shareholders. I also noticed his ability to cut costs
and search for innovative approaches to find additional discoveries. Others
would have retired with such a feather in their cap, but McEwan went on to
form US Gold instead. When he took over leadership, banks, institutions and
mutual funds began accumulating his new company and drove shares to $10 just
on the news of his leadership. At the time, there wasn't much of an asset base
and many exploration programs were lackluster. As the credit crisis began in
2008, shares plummeted to below $1 a share. Investors realized the company
did not have much value other than its famous leader and entrepreneur. Beginning
at the end of 2009, the discovery of El Gallo in Mexico revitalized a struggling
stock, pulling out of one of the worst credit crunches in modern history. At
that time I told my readers that this was one of my favorite silver plays.
(Please see original post by clicking
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Most people do not realize the value of a pure silver discovery and how rare
they are becoming. My readers are well aware that my firm is highlighting the
silver area as a moving force in 2011 by our focus on US Gold, which might
as well be renamed US Gold and Silver. Its ownership of the El Gallo Project
in Mexico places it at the forefront of world-class silver mines comparable
to Pan American Silver's (PAAS) Alamo Dorado. There are very few silver discoveries.
Since silver is mostly produced as a byproduct, this significant re-rating
of the gold/silver ratio will awaken investors to pure silver discoveries,
which can increase in value at higher silver prices.

From the recently released scoping study, El Gallo clearly demonstrates its
world-class status by its low cash costs, good grade, open pit and significant
exploration upside.

With one of the most aggressive exploration budgets planned in Mexico, I expect
El Gallo to return significant shareholder value. There are many exciting prospects
around El Gallo in which I believe additional discoveries could be made this
year.

El Gallo is very similar to Fronteer's (FRG) Long Canyon in that they both
had significant exploration potential and targeted prospects with high potential.
I believe US Gold is getting a clearer picture of this deposit and may produce
significant exploration results this year.

Now after the most recent financing, US Gold has $100 million in the bank
to explore and develop key assets in Mexico and Nevada. Insiders control over
20% of the shares -- unheard of in the industry. I expect 2011 to be a momentous
year where US Gold breaks the $10 barrier and as investors become aware of
its world-class discoveries in Mexico and Nevada. The scoping study of its
Gold Bar Project in the Cortez Trend and the recent discovery at Limo has now
transformed the company; it has a fast-growing silver discovery in Mexico and
is seeing the best results out of Nevada to date. In fact, John Hathaway of
the Tocqueville Gold Fund has added US Gold to the fund's holdings.

US Gold was listed on November 2, 2010 on the prestigious New York Stock Exchange.
Home of such stalwarts as Newmont (NEM), Barrick, and Goldcorp, US Gold is
the only pure exploration stock on the exchange. Moreover, McEwen is on record
saying that US Gold will join the S&P 500 by 2015, with production of 5
million ounces of silver and 110,000 ounces of gold by 2013. Also noteworthy:
McEwen receives no salary. He owns 21% of the company. Such a vote of confidence
by a CEO in the company he is building is indeed a rarity in the annals of
gold mining history.

The million-dollar question remains: When will US Gold merge with Minera Andes?
Minera has a great land package around Goldcorp's Cerro Negro Project. Goldcorp
paid a hefty premium for this property as there is blue-sky potential for additional
discoveries in this region. I see a lot of positives of a merger and very few
negatives. Costs will come down, and after its spin-off of its copper project,
if US Gold and Minera Andes are combined, it will be a precious metals exploration
powerhouse with large valuable land positions in Nevada, Mexico and Argentina.
I thought Mr. McEwen was overly optimistic when he mentioned his goal was to
be on the S&P 500 by 2015 at a time when he did not have the amount of
resources he has now. Now seeing the transformation of these two companies,
maybe his call wasn't off the wall. In a very quick time frame, he has built
up two incredible exploration companies.

I started reading charts at eleven years old. One day my father, a market
trader and technician found his library of books on technical analysis mysteriously
disappearing. He later found the textbooks under my bed. For many years day
and night I studied technical analysis and charting, working and learning from
my father who has over 50 years of trading experience. Technical analysis is
my passion and love.

In 2001, I started noticing the junior mining stocks and gold as having a
tremendous upside. For the past 9 years I have researched many juniors and
have identified the major winners using technical analysis and finding top
management.

I earned a Bachelors Degree in Mathematics and a Masters Degree. I learned
most of my technical analysis from the school of hard knocks, managing real
money for myself and for my family.

Constantly perfecting my craft, I have traded for two decades of success in
many different markets. I have been asked to post ideas to some of my students
who have taken my course in charting and technical analysis. I have made an
excellent living trading stocks for myself.

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